Transactions of Decline

The basic building blocks of our society -- cities -- are functionally insolvent. There are no orderly-but-dumb policies that can be enacted in Washington DC or at the Federal Reserve that will fix that. These insolvencies can only be remedied by painful adjustments in approach to growth, economic development, transportation and government at the local level. Our cities need to become more financially productive.

Case in point, when I was on vacation, my local city council had one of those difficult conversations about how to find an impossible amount of money for an essential need. Here's how the local newspaper explained the problem:

Fire Chief Tim Holmes, with the assistance of city Finance Director Connie Hillman, walked the council members through his department's budget, and how he plans to replace old trucks over the next decade.

There will be a little more than $300,000 in the department's capital outlay fund at the end of the year, Hillman said, which doesn't cover the $1.2 million cost of a new ladder fire truck, which Holmes predicts the department will need to buy in 2018. The oldest truck in the department's garage, the 1984 ladder truck will be 34 years old in 2018.

So we have an old truck that needs to be replaced. This is not a shocker; trucks get old and need to be replaced. When we buy a new truck -- assuming it is an essential piece of equipment, which I'm not suggesting this vehicle isn't -- we know from the moment of purchase going forward that we will need to purchase a replacement someday.

Here's some simple math, again from the news report:

The department knows it will need a new ladder truck, Hillman said, the question is how to fund the expense. The roughly $80,000 the department has been saving every year "isn't enough for all of the equipment needs."

Replacing all the main trucks the department has would cost around $6 million, council member Gabe Johnson said. If they last around 20 years, "we should have been saving $200,000-$300,000 per year."

So the city needs to triple -- or more to catch up -- the amount they are setting aside just to cover fire equipment. That's one part of one department in a city of 13,500 people. Is this a systematic problem? Why, of course it is.

Council member Kelly Bevans responded the [fire] department used to not put any money away for capital outlays, and other departments don't put anything away.

"So the fire department is light-years ahead," Bevans said.

There's some amazing glass-half-full optimism.

Time to stop digging yet?

So we've got a deep financial hole and it's evident we've been putting off some difficult financial decisions. Just how difficult? That's the essential question. So many people believe this is just a matter of leadership, of having the courage to make the tough decisions to raise taxes and/or cut spending and get that budget under control. If it were only that simple.

If all the 2016 proposed capital items were approved, it would carry a total cost of $2.2 million. The 2016 levy would have to increase $2.6 million, or 53 percent, over the previous year to pay for all the capital requests and other increases.

While discussion among the council revealed differing views on the budget, members reached consensus on one point: the levy couldn't increase by more than 50 percent, so some capital items would have to go unfunded.

It should be noted that the capital requests by the staff are not nearly what would be needed to actually maintain/replace all of the stuff the city has an obligation (or promise) to keep. Even so, we're not even in the ball park of what is possible. Here are the two extremes for the council, which is a good representation of the extremes among the residents and business owners.

The lower boundary:

Of the proposed capital improvements from the various departments, Koep said her priority would be an improved heating, ventilation and air conditioning system for city hall, which carries a cost of $600,000. Her proposed levy increase of 0-2 percent "is doable," she said, and a 2 percent increase would represent an additional $100,000.

The upper boundary:

Borkenhagen used the example of the property taxes he pays on his home to personalize the levy discussion. Borkenhagen would be willing to pay a 15-20 percent increase in his personal property "to take this city from the doom and gloom that it's been wallowing in for many years and give it a kick."

Over the past week, Borkenhagen said he didn't hear "one item that I felt was superfluous."

"Nobody presented anything that I thought was more than just the very basics," Borkenhagen said.

This is a difficult -- dare I say impossible -- situation, especially give the constraints the city is forced to operate with. Those constraints:

An inflexible taxing system mandated by the state.

The need to provide a minimum level of service, not necessarily all mandated but certainly reasonably expected.

A development pattern that is either (a) in decline and/or (b) financially unproductive.

This is a map of value per acre for each property in Brainerd and Baxter. The higher the rise, the greater the financial productivity. Brainerd has not had the growth that Baxter has had, yet the tax base in its core neighborhoods is for more financially productive. The auto-oriented development pattern might create quick growth, but it doesn't create enduring wealth. Analysis by Urban-3.

On that last point, the city's most financially productive neighborhoods -- where they receive the most tax revenue per acre and per dollar of service obligation -- are some of the oldest neighborhoods that are experiencing decline and neglect. The newer areas -- all auto oriented -- are ridiculously unproductive; they cost the city way more to maintain and serve than they provide tax revenue.

How do we solve this set of problems then? What's a city council member to do? In an ideal world, the state would grant cities the ability to institute their own local taxing approaches so they could be better customized to their local economic ecosystem. In an ideal world, the city would ask some difficult questions about the level of service it is providing and at what cost it provides it and hopefully setup some better feedback loops.

And in an ideal world, the city would stop investing money in development patterns that were unproductive and would instead make ongoing, incremental investments throughout its most productive areas, reversing their decline and starting to grow a solid financial foundation for the city.

Of those three ideals, the third is the both the easiest and the most difficult. It is easy because it is within the city's control. The city can change its codes, its street standards, its capital improvements plan and do all the other things that would be needed to make a course correction. They can do this. Nobody outside the city could even stop them if they were committed.

It is the most difficult, however, because making such a shift will require a cultural change, not only among the public officials and city staff but also within the city's population as a whole. The same mentality that preferred the lower valued Taco John's over the higher valued (by 78%) old-and-blighted block resists -- and will continue to resist -- changes to our current approach, despite the obviously devastating results.

I'm just finishing The Guns of August by Barbara Tuchman, the Pulitzer Prize-winning book about the outbreak of World War I. Like the more than dozen books I've read on the same subject over the last year, it fascinates me how such obviously smart people can, despite their clear desire for a different outcome, find themselves senselessly marched -- like sheep to a slaughter they know is coming -- into the worst war humanity has ever experienced.

Despite all my efforts towards understanding a reason, I can't really find one. Sure, there are explanations -- entangling alliances, belligerent ideologies, historic animus -- but there is no good reason why smart individuals in an enlightened time undertook a collective course of action that was insane.

Then I read my local paper and realize: this is just a human failing. We're not meant to have big guns, we're not meant to have big budgets, unless they are the outcome of many small, difficult steps. When we skip the hard part -- when we attempt to theoretically engineer the right outcome from the top down without the necessary (yet painful) intermediary feedback in all the steps along the way -- we blow ourselves up.

Regardless of what my city does -- hold taxes steady or increase them by 50% -- next year's budget will be a transaction of decline, an attempt to hold on, just a little while longer, to what we perceive that we have. To patch things together in a seemingly pragmatic way, doing difficult work in what many will say was the best that could be done given what we had to work with.

We have to do better if we want a country full of Strong Towns. I'm more convinced than ever that it's up to us -- to you and me and everyone reading this with us -- to change the cultural expectation of those around us so that a Strong Towns approach can not only be considered, but it will actually become the default way of doing business in our cities, towns and neighborhoods.

Charles Marohn is the Founder and President of Strong Towns. He's a Professional Engineer (PE) licensed in the State of Minnesota and a member of the American Institute of Certified Planners (AICP). Marohn has a bachelor's degree in Civil Engineering from the University of Minnesota's Institute of Technology and a Master of Urban and Regional Planning degree from the University of Minnesota's Humphrey Institute.